PHOENIX — Francisco and Pam Cruz maneuvered around boxes of new flooring and open cans of paint as they surveyed the foreclosed Phoenix house they would soon call their own.

This house wasn't typical of the thousands in foreclosure-battered Arizona that banks have auctioned for cheap — often to investors who make just enough repairs to satisfy a potential renter.

The Cruzes will become first-time homeowners, helped by one of many nonprofit groups that can snag foreclosures at a discount — and sometimes for free — before banks make them available to speculators.

It's a glimmer of hope for struggling neighborhoods that are watching banks foreclose on a record number of homes this year.

In the Cruzes' case, Rebuilding Together obtained the home for free from JPMorgan Chase & Co., the bank that foreclosed on its previous owner. Honeywell International Inc. provided the labor to renovate it and $25,000 cash for the materials.

In a market hot with speculators snapping up cheap foreclosures, Rebuilding Together's program is one of many that give a leg up to nonprofits and redevelopment agencies trying to stabilize neighborhoods dotted with vacant houses.

Yet Jim O'Donnell, JPMorgan Chase & Co.'s community revitalization program manager, acknowledges that each home being offered to a community group also has a story about someone who lost it to the bank.

"It's an unfortunate situation, and that's why we really take a conscious effort to work with our partners to ensure that we can have some good stories at the end of this unfortunate equation," O'Donnell said. "Through these programs, we put what I call this protective umbrella over these affordable homes so that first-come first-served nonprofits can get access to them to ensure they get turned back into the hands of the community."

Cruz and his wife watched earlier this month as more than 70 red-shirted Honeywell Aerospace employees swarmed throughout the three-bedroom house, putting the final touches on new kitchen cabinets, painting baseboards and walls, and cleaning up the landscaping.

"All the neighbors, they're just so grateful, because the house was looking so bad," Pam Cruz said. "This is a good example of the banks working with the mortgage companies and so forth, helping the community revitalize the neighborhood."

The disabled Vietnam veteran and his wife bought the house after the renovation was complete and got a completely updated home for below market value. The mortgage payment will be much less than the $900 a month they were paying in rent.

Under an expanded agreement announced in September between the federal government and banks that provide about 75 percent of all U.S. mortgages, as many as 100,000 more repossessed homes will join those already being pumped into the nonprofit and redevelopment agency pipeline.

That deal started in 2008 as a pilot program to provide foreclosed homes to cities and nonprofits that could renovate them for low- and moderate-income families. About $7 billion in federal funds has been allocated to the program.

But the discount program will only handle a small percentage of the foreclosures expected in the coming years. Banks seized more than 980,000 homes nationwide through the first 11 months of 2010 and will likely take back a million more next year, according to foreclosure listing firm RealtyTrac Inc.

The home the Cruzes now own is one of 1,200 Chase has donated or sold at steep discounts to nonprofits or community development agencies in the past two years. There are similar programs at other major lenders, including Wells Fargo & Co., which will donate close to 200 homes this year and sell hundreds more at a discount.

The Cruzes said they had been contemplating buying a house for months before a friend who is a real estate agent recommended the couple to Rebuilding Together's Phoenix chapter. As first-time homebuyers, the retired couple were the type of people the group is looking to help.

The nonprofits generally have experience rehabbing homes, and their efforts help pull up home values. Groups like Habitat for Humanity, Rebuilding Together and community development organizations like Detroit Shoreway in Cleveland and Jacob's Ladder in Memphis participate.

The availability of foreclosure homes has helped community-based housing groups like Community HousingWorks in San Diego expand from developing affordable apartment housing to helping buyers get into their first homes.

The 30-year-old group started a nonprofit brokerage in 2008 and soon discovered that buyers were not able to buy homes because of competition from investors.

"The first 15 days on the job back in '08, I made 50 offers and had none of them accepted" because investors snapped them up, said Jorge Luis Vega, who runs the group's nonprofit brokerage.

Another group that specialized in rehabilitating homes told Community HousingWorks of banks' "first-look" programs, and Vega's group signed on quickly.

"Buyers in this market that we serve aren't objecting to price, they're just not being given access to inventory," Vega said. "And I think that these first-look programs are really allowing a lot of folks that want to be in these more diverse communities."

This year, Community HousingWorks acquired 18 homes, rehabbed them and handed the keys to buyers. Next year, they hope to do close to 100.

In Cleveland, the Detroit Shoreway neighborhood organization has acquired 72 one- or two-family properties in the past two years and is actively leaning on banks to help it obtain more distressed properties.

"The thing we try to get banks to realize is if you sell a property, just fire-sale it to a slum investor, you may hold the mortgage on the property next door," said Matt Lasko, the group's housing director. When that owner gets sick of the property next to them, Lasko said, "then guess what, now you have another mortgage in default."

Dennis Flynn, executive director of Rebuilding Together in the Phoenix area, said his group has historically focused on fixing up homes for the elderly, disabled and poor. Only recently has Flynn started thinking about actually acquiring properties and putting deserving homeowners in them.

"We'd like to make this a veteran's program," he said as he scrolled through a list of more available first-look houses on his smart phone.

For Francisco Cruz, who suffers from diabetes and other ailments he traces to his service as a Green Beret on multiple tours of Vietnam in the 1960s, watching the final touches being put on his home was emotional.

"We were overwhelmed with all these people coming to help us," said Cruz, who is known as "Chico." "Because you know well that labor is the highest thing whenever it comes to remodeling a home. The labor really gets you."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Explainer: The top 10 business stories of 2010

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In 2010, the economy rebounded fitfully from the Great Recession — starting strong, wobbling at midyear but showing enough vigor by year's end to quell fears of a second recession. Yet Americans hardly felt relief under the weight of high unemployment, which began the year at 9.7 percent and is now 9.8 percent.

An oil spill devastated the economy and environment along the Gulf Coast and hammered energy giant BP's stock price and reputation.

China muscled past Japan to become the world's No. 2 economy, a reminder that the global economic order is shifting and America's supremacy is diminishing.

It was a year of job shortages and swollen budget deficits that disheartened Americans and caused deep losses for incumbent Democrats on Election Day. The Federal Reserve tried with scant success to jolt the economy with record-low interest rates.

The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The oil spill in the Gulf came in second, followed by China's economic rise.

1. Economy struggles

AP

Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can't sustain the pace. The lingering effects of the recession slow growth.

The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer.

Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed.

Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend.

As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged.

The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP's stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

3. China's rise

Reuters

China passes Japan as the world's second-biggest economy. The World Bank says it could surpass the United States by 2020. China's gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it's about $38,000 per person. China's thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

4. Real estate crisis

AP

Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another.

An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring "robo-signers" to sign paperwork without checking their accuracy.

Toyota's reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota's U.S. sales rise just 0.2 percent through November in a year when the industry's overall sales climb more than 11 percent.

6. GM's comeback

AP

General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM's stock.) GM's recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

7. Financial overhaul

AP

Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

9. 500 million Facebook users

AP

Facebook tops the 500-million-user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world's third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users' knowledge or permission. Founder Mark Zuckerberg is named Time magazine's "Person of the Year" and is the subject of a high-profile movie about Facebook's creation.

10. iPad mania

AP file

Apple Inc. unveils the iPad, bringing "tablet" computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.